Small English town outpaces others in likely online fraud

A town in England with a modest population of 10,000 or so has chalked up the highest percentage of online transactions flagged as fraudulent by a U.K. security analyst.

More than 24 percent of the e-commerce transactions done in Shildon, in the northeast of England, were flagged as fraudulent, said Andrew Goodwill, a director of The 3rd Man, a security company that specializes in preventing credit-card fraud.

Retailers can subscribe to The 3rd Man's Gatekeeper service, which evaluates transactions made where the cardholder and card are not present in the store, and recommends rejecting ones that appear risky.

One warning factor, for example, is if the shipping address for an item is different from that of the cardholder. Another one is if a card has been used before in a fraudulent transaction.

Retailers may opt to allow a transaction that The 3rd Man deems suspect, but they run of the risk of incurring a chargeback from the card issuer if it does turn out to be fraudulent.

The 3rd Man's service is used for about 20 percent of all e-commerce transactions in the U.K., and the company has periodically released statistics on areas where it has flagged high levels of likely fraud. The latest figures cover a one-year period from July 31, 2008 to Aug. 1 and cover more than 85 million transactions.

Residents of Shildon conducted 12,229 online transactions with a value of £1.4 million, Goodwill said. Of those transactions, The 3rd Man flagged 3,014, or 24.6 percent, as suspicious.

Goodwill, who has had contact with the police about Shildon, believes it is due to one or two people who were conducting a massive amount of online fraud.

Over the weekend, Goodwill said, he learned of a Shildon woman who became romantically involved over the Internet with a man who said he was a British soldier stationed in Afghanistan. The purported soldier asked the woman if she would collect gifts sent to him at her address and then forward the goods to his brother in Ghana, Goodwill said.

The woman complied, sending two to three crates of goods a day from her home, Goodwill said, citing information from police. Inside the home, goods were stacked everywhere. In industry parlance, the woman is known as a "mule," someone who willingly or unwittingly accepts stolen goods for shipping elsewhere.

Fraudsters are increasingly looking to find vulnerable people on online dating sites in order to recruit unwitting mules under different pretenses. "They're just being conned all the way through," he said.

Several of the U.K. districts where The 3rd Man has flagged a high percentage of transactions as fraudulent are in London. In particular, the Thamesmead area East of London saw 51,473 transactions worth £8 million. Of those, The 3rd Man flagged 8,822 transactions, or 17.1 percent of the total, with a value of £2.1 million.

The area around Woolwich and Plumstead, also to the East, had 122,509 transactions for a total value of £16.9 million. The 3rd Man flagged 9.9 percent with a value of £2.6 million as potentially fraudulent.

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